Mrs. Evelyn Carter, aged 80, a wealthy widow in Alberta, passed away with an estate valued at $5 million. Her Will stipulates that specific bequests totalling $200,000 are to be paid, and the remainder is to be distributed equally among her three children. However, her estate consists primarily of illiquid assets, such as real estate and private company shares. She has a life insurance policy with a face value of $1,000,000, where her estate is the beneficiary. Which of the following is the primary benefit of this life insurance policy to Mrs. Carter's estate?

Question: Mrs. Evelyn Carter, aged 80, a wealthy widow in Alberta, passed away with an estate valued at $5 million. Her Will stipulates that specific bequests totalling $200,000 are to be paid, and the remainder is to be distributed equally among her three children. However, her estate consists primarily of illiquid assets, such as real estate and private company shares. She has a life insurance policy with a face value of $1,000,000, where her estate is the beneficiary. Which of the following is the primary benefit of this life insurance policy to Mrs. Carter's estate?

Answer options: ✅ It provides immediate liquidity to cover final expenses, debts, and potential estate administration taxes (probate fees).

• It increases the total value of her estate, thereby maximizing the inheritance for her children.
• It bypasses the probate process, making the entire estate distribution faster.
• It eliminates any capital gains tax that would otherwise be due on her illiquid assets.

Correct answer: It provides immediate liquidity to cover final expenses, debts, and potential estate administration taxes (probate fees).

Explanation: Life insurance proceeds payable to the estate provide immediate cash, which is crucial for managing estate liquidity – covering final expenses, debts, and estate administration taxes – without forcing the sale of illiquid assets at potentially unfavourable times.